Types of late-stage investors

Type of investor: Traditional VC

Individual check sizes: Up to $50M in a single round (bigger numbers usually out of a growth fund)

Valuations for investment: Traditional VCs will not usually lead rounds above mid-hundred-million-dollar valuations. However, a number of funds have now rolled out growth funds that will invest at $1B plus.

Benefits: May be able to provide operating or scaling advice, depending on VC partner.

Drawbacks: More likely to ask for a board seat (which can also be a benefit, depending on the VC). If you have already raised money from VCs, may not broaden network much.

What they will look for: While traditional VCs will be interested in underlying business metrics, they will often be more focused on macro market trends, unit economics, and broader company strategy and differentiation. These investors will often focus on the “moat” the company is building as a point of strategic defensibility and ongoing sustainability.

Type of investor: Growth/mezzanine fund

Individual check sizes: $25M to $500M

Valuations for investment: $100M to $10B.

Benefits: May be hands-off investors. Depending on investor subtype, may bring different network to the table.

Drawbacks: May be less operationally inclined, even though emphasis is later stage. May be very numbers driven, so will spend a lot of time focused on financials, long term moats, and the like.

What they will look for: These types of investors tend to be very numbers-driven. They will focus on growth rates, margin, user adoption, costumer acquisition costs, and other key metrics around unit economics and core company metrics.

Type of investor: Hedge fund

Individual check sizes: $10M to $500M

Valuations for investment: Mainly later-stage rounds in the $500M-plus range, although a number of hedge funds have done series A or even seed rounds.

Benefits: In some cases, may have a great understanding of the industry or market based on their investments in public companies in your space. For example, Viking is a savvy genomics investor. May be valuation insensitive, although this is not always true and depends on the hedge fund. May care less about taking a board seat, which can be helpful if you already have multiple investor board members.

Drawbacks: Usually don’t understand the challenges and uncertainty of a startup. May send a “low quality” signal to later investors if a hedge fund comes in early (this depends deeply on the hedge fund and how much they have invested in the industry in the past. Some are known as quite savvy).

What they will look for: Leaders in large markets. These are often financially driven investors who focus on underlying numbers and longer-term cash flows. More likely to think (and assess investment opportunities) like a public market investor rather than a venture one.

Type of investor: Private equity fund

Individual check sizes: $10M to $500M

Valuations for investment: Mainly later-stage rounds in the $500M-plus range, although some private equity funds have done series A or series B rounds.

Benefits: May have broad or differentiated networks. May be able to provide introductions to other late-stage portfolio companies if doing enterprise sales.

Drawbacks: There are many great, supportive, private equity firms investing in private technology companies. However, one private equity fund in particular is known to wrap a nasty set of terms into financing rounds or act badly once a term sheet is signed. Others, such as banks with private equity funds (e.g., Goldman Sachs or Morgan Stanley), are known to value the longer-term banking relationships and are more company-friendly. Be cautious when selecting a private equity partner to work with, and make sure to do diligence by checking with other technology company entrepreneurs they have funded.

What they will look for: Private equity firms tend to invest based on numbers and a large revenue stream. They will take a close look at margin structure, growth rates, topline revenue, as well as the overall macro market dynamics and defensibility of your business.

Type of investor: Family office

Individual check sizes: $5M to $500M

Valuations for investment: Any valuation, although typically family offices get involved in later-stage rounds.

Benefits: May have a strong network to help company, depending on market and who they represent. May or may not be valuation-insensitive depending on how professionalized their investing is.

Drawbacks: Often do not understand early-stage or startup investing and can get uneasy if things get tough. In general, it is better to work directly with the person whose money it is then the family office staff. Alternatively, look for family offices who have done a number of private market investments in the past and understand the dynamics.

What they will look for: Typically family offices look for signals from other institutional investors for round quality. They will look for startups in large markets and typically prefer high-margin businesses.

Type of investor: Angel SPV (Special Purpose Vehicle) 1

Individual check sizes: $1M to $50M

Valuations for investment: Anything from series A on up.

Benefits: Usually this is an investor or angel already on your cap table who raises money for you as part of a large venture round. This is a way for angels or small funds to increase ownership in your company with your permission. This may also be a way to increase time spent or deepen the engagement by an existing investor, or to raise money for the company in a way that ensures additional equity/preferred stock votes go to someone the company trusts.

Drawbacks: Your VCs may push back on an angel making a large investment this way. May have issues actually raising or delivering the money. You need to make sure to define the process they are allowed to follow and what information they can or cannot share with their potential LPs.

What they will look for: SPVs can either lead a round, or be part of a syndicate. If they lead a round, they will act like any other venture capital lead. If they are part of the syndicate, they may be a little more momentum-driven. For late stage round and large check sizes, expect an SPV to do full diligence on the company, its team, financials, and overall market trends, defensibility, and growth rates.

Type of investor: Public market investor

Individual check sizes: Up to $500M

Valuations for investment: Usually in the hundreds of millions to billions.

Benefits: Large source of trusted capital. Typically seen as “smart money.” Tend to hold on to stock post-IPO and send signal to public markets that your company is legitimate.

Drawbacks: May publically mark down your stock and affect future fundraises or secondaries. 2

What they will look for: Tend to assess company through the lens of what an IPO and beyond will look like (e.g., core financial metrics, competition and defensibility, etc.).

Type of investor: “Strategic” investors 3

Individual check sizes: Typically range from tens of millions to a billion or more

Valuations for investment: Usually in the hundreds of millions or more. Strategic investors may ask to invest earlier, but you may want to save them for later rounds and decrease the risk of signaling in early rounds.

Benefits: Valuation insensitive and more likely to pay a premium. May have core ties or knowledge that can dramatically help your company. May be able to wrap a broader “strategic” deal around investment that can accelerate your company.

Drawbacks: For early round, may cause “signaling,” in which other strategic investors avoid buying or partnering with you. For example, if you are a digital health company and Pfizer buys a stake in you early, other pharmaceutical companies may be less likely to partner with or try to buy you. Once rounds get later this signaling tends to decrease. Strategic investors may also try to use their investment to get information and learn about your business so they can eventually compete with you.

What they will look for: Strategic value of your company in their industry. Ability to learn from your startup about how their market may get reshaped. In some cases a strategic investment is a prelude to an acquisition offer, so strategics view it as a way to get to know you better.

Type of investor: Large Foreign Internet company

Individual check sizes: Up to $1B

Valuations for investment: Huge range, from early-stage to multi-billion-dollar range.

Benefits: Less valuation sensitive. May help you enter China or other markets or simply be a source of capital. Tencent, Alibaba, Rakuten, and others have invested aggressively in tech startups over time.

Drawbacks: May try to tie investment to joint venture or other structures in their home market. May be trying to learn from your company so they can launch competitor in their own market.

What they will look for: Strategic value of potential investment upside, depending on firm and individual objectives.

Type of investor: Sovereign Wealth Fund

Individual check sizes: Up to a few billion

Valuations for investment: Huge range, from early-stage to multi-billion-dollar range.

Benefits: Some are less valuation sensitive (others are quite sensitive). May help you enter new markets depending on the country they represent or sell to large stateowned enterprises. Have enormous scale of capital. In a subset of cases some sovereign wealth funds may invest for strategic reasons—for example they want to understand or get closer to technology that may impact companies in their country, or to trade petro dollars for tech assets to diversify their economic holdings.

Drawbacks: Some may be slow to move or have multiple hurdles in place for investment. Some funds newer to direct investment may lack savvy or misunderstand how startups work.

What they will look for: Strategic value and potential investment upside, depending on fund and individual objectives.

  1. An SPV (special purpose vehicle) is a one-time fund set up to invest in a particular company. Just as a venture fund raises money from limited partners to invest in multiple companies, an SPV is a one-off fund that raises money from LPs to invest in only one company. Recently, a number of funds (early-stage as well as traditional VCs), as well as individual angels, have raised SPVs to invest in specific companies.
  2. See eladgil.com. [http://fortune.com/2015/11/12/fidelity-marks-down-tech-unicorns/]
  3. Strategics are large, cash-rich companies in your industry who may want to invest in order to (1) cut a broader partnership with your company, (2) learn more about how software and technology may impact their industry, or (3) try to acquire you later. For example, Roche was part of $100 million round in Flatiron, GM was part of a $1 billion round in Lyft, and Intel was part of a major round in Cloudera. [http://arstechnica.com/cars/2016/01/general-motors-bought-sidecar-gave-lyft-millions-now-its-launching-maven/]